The Impact Of Capital Structure On Performance Of Small And Medium Enterprises In Tanzania

ABSTRACT

Despite the improved access of financing institutions to SMEs, their performance has stood very low in Tanzania. This prompted this study to assess the impact of capital structure on performance of SMEs in Tanzania. The study particularly examined the impact of long-term debt, short-term debt, and equity on performance of SMEs in Tanzania. The study adopted causal research design compounded by the quantitative approach to generate data from SMEs registered by BRELA that were selected using the random sampling. Secondary data dating from 2017 to 2019 for SMEs registered under BRELA and supervised by SIDO were collected for analysis. The data were analyzed using descriptive statistics, pairwise correlation matrix, random effect model, fixed effect model to establish the relationships among the study variables. The study found out that long-term debt has negative significant influence on the performance of SME in terms of ROE and positive influence on ROA and ROCE. Also, the study found out that short term debt had a negative significant influence on the performance of SME in terms of ROE and ROCE and positive significant influence in terms of ROA. Furthermore, equity had statistically negative influence on the performance of SMEs in terms of ROE and ROCE and a significant positive influence on the performance of SME in terms of ROA.The study recommends SMEs’ owners to consider the key variables, such as business size, age, tangibility, sales, and debt composition which influence the performance of SMEs and reduce bankruptcy risk